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Tuesday, January 1, 2008

Written by David Rodriguez, Currency AnalystRecent Australian dollar gains have been completely offset by similar Canadian dollar rallies, but a hold of support on the AUDCAD pair may send the Aussie higher through short-term currency trading. As such, we look to take advantage of what appears to be an excellent range trading opportunity in the week ahead. Virtually empty economic calendars for both currencies will likely make for quiet price action through the holiday-shortened trading week. Yet we are mindful of the fact that typically illiquid market conditions may force particularly choppy intraday price action. With that said, we nonetheless feel that this trade represents solid risk-reward and a viable trade strategy.

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Trading Tip – Recent Australian dollar gains have been completely offset by similar Canadian dollar rallies, but a hold of support on the AUDCAD pair may send the Aussie higher through short-term currency trading. As such, we look to take advantage of what appears to be an excellent range trading opportunity in the week ahead. Virtually empty economic calendars for both currencies will likely make for quiet price action through the holiday-shortened trading week. Yet we are mindful of the fact that typically illiquid market conditions may force particularly choppy intraday price action. With that said, we nonetheless feel that this trade represents solid risk-reward and a viable trade strategy.

Event Risk Australia and Canada

Australia – The Australian economic calendar is devoid of any insightful data until the second week of January, when Foreign Reserves, Job Vacancies and Retails Sales are due out for release. The release of Foreign Reserves for the last month of the year will help to shed light on the demand for the currency as we head into 2008. Job Vacancies will help clarify growth prospects for the country based on the demand for skilled labor. The often market-moving Retail Sales report will give us a better idea of how consumers are reacting to the current economic conditions, and will provide some clues of how the existing inflationary pressures are wearing down on consumers. In any case, we do not expect any remarkable reactions until these releases, but remain on the lookout for other clues that may give a second thought to our current forecasts.

Canada – The Canadian economic calendar is devoid of any major event risk in the week ahead, leaving us confident to continue range-trading until the release of new data for the first week of the New Year. New data will be release at the end of the first week, and will provide a helpful insight on how the country is dealing with rising energy and food costs, along with an early measure of the inflation rate. These releases have market-moving potential as they will affect the current sentiment of both businesses and households, as well as identify if inflation will be a major concern for the Bank of Canada. Housing Starts data is expected to aid in giving a better feel of the overall economic conditions, as well as the health of the housing and construction sectors. We will be watchful of all the new data due out for release as they will help to determine the growth prospects for Canada in 2008. Given that the Canadian calendar contains no new release of data until the first week of the New Year, we will continue to holding our position until we assess the new data.